NCLT Ahmedabad Rejects 'Collusive' Resolution Plan for Girdhari International, Orders Liquidation Amidst Suspicions of Fraud

Ahmedabad: In a significant ruling, the National Company Law Tribunal (NCLT), Ahmedabad Bench, has rejected a resolution plan for Girdhari International Pvt. Ltd., describing the entire insolvency process as a potential "collusive arrangement" designed to help the company escape massive liabilities. Citing gross non-compliance with the Insolvency and Bankruptcy Code (IBC), 2016, the bench of Mr. Shammi Khan (Judicial Member) and Mr. Sanjeev Sharma (Technical Member) ordered the liquidation of the corporate debtor.

The Tribunal raised serious questions about the "commercial wisdom" of the Committee of Creditors (CoC), which had approved the plan despite glaring financial discrepancies, including over ₹50 crore in unrecovered export proceeds and suspicious accounting entries.

Case Background: A Troubled Insolvency Process

Girdhari International Pvt. Ltd. was admitted into the Corporate Insolvency Resolution Process (CIRP) on February 29, 2024, following a petition by its sole financial creditor, M/s. Drip Capital Inc. The CoC, comprising only Drip Capital Inc., approved a resolution plan with a 100% voting share.

The plan, submitted by a consortium of Mr. Kailash Thanmal Shah and M/s. Nova Dyestuff Industries Pvt. Ltd., proposed a total payout of ₹45 lakh. This included ₹20 lakh for CIRP costs and ₹25 lakh for the financial creditor, against an admitted claim of over ₹2.23 crore. The liquidation value of the company was a mere ₹70,720.

However, the Resolution Professional, Mrs. Neha Bhasin, faced persistent non-cooperation from the company's suspended management throughout the process, which was marked by multiple litigations and extensions.

Tribunal's Findings: Unraveling a Web of Discrepancies

Upon scrutinizing the case records, the NCLT uncovered a series of alarming red flags that cast doubt on the legitimacy of the resolution process.

Key findings included:

• Massive Unaccounted Assets: The company's books showed sundry debtors of ₹50.51 crore and an investment of ₹3.30 crore in immovable properties. Shockingly, both were valued at NIL by the valuers due to a lack of information from the management.
• Suspicious Creditor Apathy: Despite sundry creditors being owed over ₹49 crore, none filed a claim during the CIRP, a highly unusual occurrence.
• Potential FEMA Violations: The Tribunal noted that the non-recovery of export proceeds exceeding ₹50 crore constituted a potential violation of the Foreign Exchange Management Act, 1999 (FEMA).
• Regulatory Scrutiny: Inquiries by the Customs and GST departments against the company had been stalled due to the CIRP moratorium. Furthermore, an outstanding income tax demand of over ₹29 crore was on record.
• A "Shell" Company: The Tribunal observed that the corporate debtor had no ongoing business, no employees, and virtually no assets, making the concept of its revival as a "going concern" questionable.

The Tribunal concluded that the entire exercise appeared to be an attempt to use the IBC's provisions, particularly the immunity granted under Section 32A, to extinguish massive statutory and other liabilities.

Questioning the 'Commercial Wisdom' of the CoC

The NCLT delivered a sharp critique of the CoC's decision-making. While acknowledging the limited scope of judicial interference in the CoC's commercial wisdom, the Tribunal held that it could not be a "mute spectator" to patent arbitrariness.

The judgment stated:

> "In view of the facts discussed above, the CoC not only acted in a 'capricious, arbitrary, irrational' manner but also approved the plans that contravene the provisions of IBC and the Regulations... It does not lead to value maximisation from the assets of the CD."

The Tribunal found that the CoC, solely focused on its own recovery, failed to diligently evaluate the plan's feasibility and viability as mandated by Section 30(4) of the IBC, especially in light of the company's dubious financial state.

The Final Verdict: Plan Rejected, Liquidation Ordered

Finding that the resolution plan failed to meet the mandatory requirements of Sections 30 and 31 of the IBC and Regulation 38 of the CIRP Regulations, the NCLT rejected it. The plan did not address the cause of default, demonstrate viability, or provide for effective implementation.

Consequently, under Section 33(1)(b) of the IBC, the Tribunal ordered the liquidation of Girdhari International Pvt. Ltd. and appointed Mr. Rajendra Jain as the Liquidator.

The NCLT issued strong directives to the Liquidator to:

1. Investigate the company's financial affairs, including the fictitious entries and undervalued assets.

2. Take steps to recover the substantial export receivables.

3. Cooperate fully with authorities like the RBI, Income Tax, and GST departments to facilitate their inquiries.

This judgment serves as a stern warning that the NCLT will rigorously scrutinize resolution plans to prevent the misuse of the IBC as a tool for escaping liabilities and will not hesitate to intervene when the CoC's commercial wisdom appears to be exercised arbitrarily or irrationally.